Question

Hennie's Drapery Service is investigating the purchase of a new machine for cleaningend blocking drapes. The machine would cost $113,730, including freight and installation. Henrie's has estimated that the new machine would increase the company's cash inflows, net of expenses, by 30,000 per year. The machine would have a fve-year useful life and no salvage value Click here to view Exhibit 88-1 and Exhibit88-2. to determine the appropriate discount factor(s) using table Required: 1. Compute the machine's internal rate of return. (Round your RR answer to nearest whole percentage) Internal Rate of Return Choose Denominator Choose Numerator: 2. Compute the machine's not presenta una discount rate of 10% 3. Son Matthew machine Round your answer to nonest w the company's r ontage how he p ower to commemorate from

Answer 1

1	Factor=Net initial investment/Incremental cash flow=113730/30000=3.791
	Number of years=Useful life of machine=5 years
	Use present value annuity table to find the IRR that corresponds to 3.791 in 5 year row
	Hence,Internal rate of return=10%
2	NPV=Present value of cash inflows-Net initial investment
	Discount factor=10%
	Number of years=5 years
	Present value of cash inflows=Cash inflows*Discount factor at 10% for 5 years=30000*3.791=$ 113730
	NPV=Present value of cash inflows-Net initial investment=113730-113730=0
3	Factor=Net initial investment/Incremental cash flow=113730/27000=4.212
	Number of years=Useful life of machine=5 years
	Use present value annuity table to find the IRR that corresponds to 4.212 in 5 year row
	Hence,Internal rate of return=6%
	I appreciate your ratings